the perceived contribution of the practise of strategic

Journal of Contemporary Management DoE accredited ISSN 1815-7440

Volume 9

2012 Pages 24 – 47

Page 24

THE PERCEIVED CONTRIBUTION OF THE PRACTISE OF STRATEGIC MARKETING ON THE PERFORMANCE OF SOUTH AFRICAN COMPANIES

M JANSEN VAN RENSBURG (University of South Africa) P VENTER (University of South Africa)

JW STRYDOM (University of South Africa)

Abstract: Despite criticism that the marketing discipline has a diminished role and influence within academia and business, there is general agreement that strategic marketing practice could contribute to company performance. The focus of this article is on how South African companies implement key strategic marketing concepts in order to establish a pattern of organisational behaviour around strategic marketing practice. The perceived contribution of these practices on company performance is also established. The South African perspective provides new insight into the practice and compliance of marketers within the context of developing countries. Insight of 167 South African marketing executives, obtained by means of a quantitative survey, suggests that although most firms performed strategic marketing activities, they were less confident that they established a competitive advantage or customer insight from doing so. The relative importance of customer insight was demonstrated by the fact that it had a significant correlation with financial performance, whereas segment-based marketing activities did not. Merely ‘ticking the boxes’ and performing strategic marketing activities for the sake of it is thus not enough to improve financial performance.

Key phrases: Segmentation, targeting, segment-based marketing, market fit, performance

1 INTRODUCTION

The role and relevance of marketing, both as an organisational function and academic

discipline, have received considerable attention in public and academic debate and

literature (Brown 2005; Katsikeas, Robson & Hulbert 2004; Nath & Mahajan 2008;

Reibstein, Day & Wind 2009; Verhoef & Leeflang 2008; Webster, Frederick, Malter &

Ganesan 2005). In these discussions, marketing is denounced by academics for its

‘manipulative pseudo intimacy’ and disparaged by CEOs for its imprecise and

unquantifiable contribution to the bottom line (Brown 2005:28).

In fact, a study conducted by McDonald and Dunbar (2004:9) revealed that marketing,

as a function has been increasingly relegated away from the core strategy-making

engine of organisations to become a sales support department, in charge of T-shirts

and promotions. Research findings presented by Sheth and Sisodia (2005:162)

confirm that the marketing discipline has been marginalised and suggest that many

strategically important aspects are being absorbed by other functions in the

organisation. The general consensus seems to be that marketing has lost its strategic

role and that marketers are increasingly engaged with more tactical decisions,

particularly advertising and support (Brown 2005; McDonald & Dunbar 2004; Sheth &

Sisodia 2005; Verhoef & Leeflang 2008).

M JANSEN VAN RENSBURG

P VENTER

JW STRYDOM

The perceived contribution of the practise of strategic

marketing on the performance of South African companies


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2012 Pages 24 – 47

5

Marketing academics are partly to blame for the steadily shrinking marketing domain.

In addressing the question of ‘Is marketing academia losing its way?’ Reibstein et al.

(2009:1) expressed their concern that marketing academics have little to say about

critical strategic marketing issues. Instead, they argue that marketing academics

have left voids in the marketing literature as a result of benign neglect. New insights

and perspectives in traditional marketing concepts are now produced by other

academic disciplines such as strategy, operations management and psychology, and

this situation seems to be mirrored in practice (Reibstein et al. 2009:1). Critics

furthermore question the relevance and rigour of academic research in marketing

(Katsikeas et al. 2004:568 Wind 2008:22). These authors suggest that academic

research in marketing does not sufficiently support firms confronting today’s hostile

business conditions.

Although some may declare many of the statements about the diminished role and

influence of marketing in today’s firms as anecdotal and journalistic, several authors

have found empirical support for the weakened position of the marketing department

(cf. McDonald & Dunbar 2004; McGover, Court, Quelch & Crawford 2004; Nath &

Mahajan 2008; Sheth & Sisodia 2005; Verhoef & Leeflang 2008). These authors

conclude that marketing departments should become more accountable and use their

knowledge of the market and customers to contribute to new product and service

development in order to get marketing back into the boardroom. This concurs with the

agenda for action set by Reibstein et al. (2009:2) which calls for research that

illuminates important, relevant and substantive strategic issues, even if no new

methodologies or theories are advanced. This call emphasised earlier calls for more

research to be conducted on issues relevant to practising managers within the areas

of global marketing strategy, consumer behaviour and marketing strategy (Katsikeas

et al. 2004:568).

Despite marketing practitioners and academics expressing similar priorities in terms of

strategic relevance of marketing, true research collaboration seems to be lacking.

Academic literature on strategic marketing, for example, mostly focuses on conceptual

and theoretical concepts and models, while practitioners struggle with the practical

implementation of these concepts (Dibb & Simkin 2009a; Quinn 2009:256). The


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problem, according to Wind (2008:22), might be found in the fact that academics tend

to focus on rigour with limited attention to relevance, while practitioners focus on

relevance with limited attention to rigour. As such, the prevailing research paradigm in

most parts of marketing academia is to begin with a new methodology, dataset, or

behavioural hypothesis while less attention is given to strategic marketing issues and

their application. The result is a divide between theory and practice. Most research on

marketing is moreover conducted in the developed world rather than the developing

world where many future opportunities lie (Wind 2008:21).

This article makes a contribution to addressing the theory/practice divide by focusing on

how South African companies implement key strategic marketing concepts. The

contribution of strategic marketing practise to perceived company performance will

also be investigated. Rather than focusing on consumer behaviour, this study

sought to establish a pattern of organisational behaviour around strategic marketing

practice. The South African perspective expands the traditional developed world

perspective and provides new insight into the practice and compliance of marketers

within the context of developing countries. In this study we took the view that strategic

marketing is the result of segmentation, targeting and segment-based marketing or

positioning. The focus of the investigation was furthermore on the adoption and

implementation of key strategic management concepts and excluded strategic

management processes and outcomes. In addition, this study represents an important

contribution to the understanding of the relative impact of the practice of strategic

marketing on perceived company performance. In particular, we sought to answer the

following research questions:

RQ1: To what extent are strategic marketing concepts adopted in the marketing

practice of South African companies?

RQ2: Does strategic marketing improve company performance?

Hence, the purpose of this article is to critically examine the performance

contribution of the practice of strategic marketing. This is done by firstly examining

the literature from both a conceptual and application perspective. Next, the authors

report on the research methodology and then share the insight of 167 South African


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marketing executives obtained by means of a quantitative survey. The article

conclude with practical implications for marketing managers and a research agenda

for marketing scholars.

2 LITERATURE REVIEW

Despite the criticism faced by the marketing discipline, it is difficult to find companies

that actually do not want marketing to take the lead in developing sustainable

competitive performance in the complex, confusing, paradoxical and rapidly changing

markets they face (Leventhal 2005:3). The traditional marketing approach that

advocates the marketing mix principles and the quest for market share dominance

through mass marketing techniques and a focus on new customer acquisitions is,

however, unlikely to be effective (cf. Grönroos 1994; Gupta, Lehmann & Stuart 2003;

Keegan 2004; Rust, Lemon & Zeithaml 2004; Venkatesan & Kumar 2004; Verhoef

2003).

Thus, for marketers to regain influence they need to break from the tactical focus in

marketing and associate with initiatives that are strategic, cross-functional and

bottom-line orientated (Kumar 2004:2). The first point of departure of this study was

therefore the realisation and confirmation of what strategic marketing entails from an

academic perspective. This was done by considering the content and structure of an

ad hoc selection of strategic marketing textbooks used and prescribed by

educational institutions. It would be expected that strategic management textbooks

would illuminate important, relevant and substantive strategic issues. Next, academic

literature was consulted to gain a better understanding of the adoption and

implementation of key strategic management concepts.

2.1 Strategic marketing: What is being taught?

In the past strategic marketing concepts were taught, within the wider marketing

discipline, in a rather piecemeal fashion and with little attention given to the holistic

process of strategic marketing. However, in an attempt to advance the role of

marketing, academics have elevated strategic marketing from a chapter in a

marketing textbook to a field of study in its own right. It could generally be expected

that textbooks prescribed in this field would provide a broad indication of what is

widely taught in academic strategic management. Based on the content of


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prescribed textbooks (Alsem 2007; Best 2009; Cravens & Piercy 2006; Drummond,

Ensor & Ashford 2008; Ferrell & Hartline 2008; McDonald & Dunbar 2004; Kotler &

Keller 2008; Venter & Jansen van Rensburg 2009; Walker, Mullins & Larréché 2008;

West, Ford & Ibrahim 2010; Wilson & Gilligan 2009), strategic marketing revolves

around:

1. Defining a market: Market definition includes understanding market dynamics

(situation and opportunity analysis) and defining possible customers and markets

(customer and industry analysis).

2. Segmentation, targeting and positioning: This core strategic marketing function

includes the division of a market into several homogeneous submarkets,

quantifying and qualifying the needs of the defined customer groups (segments)

within defined markets and selecting appropriate target markets (targeting).

Positioning entails the development of appropriate value propositions based on

product/service offerings and costs to meet needs expressed by the segments

(creating a sustainable competitive advantage).

3. Formulating and implementing marketing strategies: Most textbooks indicate that

strategies should be contained in a marketing plan. This plan constitutes a

strategic and tactical section. From a strategic perspective it is recommended

that the marketing plan contains specific marketing objectives and strategies for

each segment. These objectives and strategies are suggested to be the result of

insight into customer needs and market opportunities with due consideration to

internal organisational resources and capabilities. From a tactical perspective it is

recommended that the marketing plan contains the traditional marketing mix

strategies and explain how value propositions would be communicated and

delivered internally and externally.

4. Measuring marketing performance: The final strategic management phase is

based on control and typically measures performance against objectives.

Authors agree that, for the strategic marketing process to be effective, organisations

need to apply a marketing orientation and should operate in a customer-driven

manner. It is also widely agreed that the essence of strategic marketing is found in

the segmentation, targeting, positioning (STP) formula. This formula is considered by


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Sarvary and Elberse (2006:1) as a prerequisite for designing a successful marketing

strategy. Leading authors expand the formula to include the concept of value and

consider marketing as a value creation entity that defines markets and understands

value, determines value propositions, delivers value and monitors value (Best 2009;

Kotler & Keller 2008; McDonald & Dunbar 2004).

Strategic marketing is thus a process that contains generic as well as company-

specific aspects. The focus of this paper is on the generic processes (i.e. defining

markets, segmentation and targeting, and segment-based marketing) and not on

company-specific processes or content (i.e. the selected markets, positioning,

marketing plans). In line with previous calls for research the focus of the investigation

is furthermore on the practical aspects of strategic marketing such as the adoption and

implementation of key strategic management concepts. In the next section studies that

dealt with practical relevance of key strategic management concepts will be

considered. The overview includes a discussion of market definition, market

segmentation and targeting and highlights the practical importance of these concepts

as well as possible gaps in the literature.

2.2 Practical relevance of strategic marketing concepts

Forlani and Parthasarathy (2003:142) found that a proper definition of the market is

an important first step of an effective strategy analysis. A clear market definition

ensures that the strategy will be deployed in set parameters of engagement. For

instance, from the economic perspective a market definition determines the meeting

place of buyers and sellers as well as the potential competitors. From the marketing

perspective, it addresses the issue of whom to create a relationship with and why

partners in the relationship might concur. From the enactment perspective, it

identifies what the manager thinks are the most important issues to establish in a

relationship (Forlani & Parthasarathy 2003:145). In most markets, however, the

breadth of customer requirements is too extreme to allow single organisations to

satisfy all customer product and/or service needs all of the time. Companies are

more likely to achieve a match between their particular assets and the diversity of

needs by concentrating efforts on customer groups with fairly homogeneous

requirements (Dibb & Simkin 1997).


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Market segmentation is thus necessary to balance diverse customer needs with the

capabilities and resources of competing organisations in the marketplace (Lin

2002:260). The organisational benefits of market segmentation are widely accepted

(Dibb & Simkin 2009a; McDonald & Dunbar 2004; Quinn 2009) and the concept has

arguably received more scholarly attention than any other managerial marketing

concept (Quinn 2009:253). To date, much of the research on market segmentation

has focused on the development of segmentation bases and models, segmentation

research techniques and the identification of statistically sound solutions (e.g. Allenby,

Arora & Ginter. 1998; Andrews & Currim 2003; Boone & Roehm 2002; Koehly, Arabie,

Bradlow & Hutchinson 2001; Sarabia 1996).

However, according to Dibb and Simkin (2009a:219), practical questions about

implementation and the integration of segmentation into marketing strategy have

received less attention, even though practitioners are known to struggle with the

actual practice of segmentation. Bailey, Baines, Wilson and Clark (2009:228) concur

and suggest that an adequate understanding of current segmentation practice is

under-informed. Quinn (2009:255) highlights that an evaluation of the ways in which

segmentation approaches can be integrated with the needs and priorities of

strategic, managerial decision making has remained a requirement in segmentation

research. In an attempt to bridge the theory/practice divide in segmentation the

Journal of Marketing Management published a special issue in 2009 dealing with

segmentation implementation. In response to a call for papers with the aim to

improve understanding of segmentation Dibb and Simkin (2009b), Quinn (2009) and

Bailey et al. (2009) addressed practical segmentation implementation issues.

Although each of these studies contributed to the overall understanding of practical

and managerial issues relating to segmentation implementation, the insight was

obtained by means of qualitative research within the UK context. These studies

could be well complemented by descriptive survey work exploring current practice in

the generation and auctioning of segmentation implementation within different

contexts. Such insight could add granularity to the issue of segmentation

implementation within the holistic study of contemporary strategic marketing practice.


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Once the organisation understands the market structure and segments it accordingly,

it has to decide which segments it wants to serve and how. Target market selection is

thus the next logical step to follow segmentation. This process involves the evaluation

of each market segment’s attractiveness and selecting one or more segments to target

(Sarvary & Elberse 2006:2). The choice of segments to target is based on commercial

impetus or some corresponding organisational objective as well as market

competitiveness (Tonks 2009:342). McDonald and Dunbar (2004:16) suggest that

target market selection should be based on those segments that provide the greatest

opportunities for the organisation to achieve its objectives, given the organisation’s

financial and managerial resources. Successful targeting is thus dependent on a clear

strategic direction as well as customer insight within each segment.

Strategically, segmentation and targeting allow organisations to locate and tailor their

offerings for one or a number of the identified segments based on market fit. Market fit

is the capability configuration of an organisation moderated by the external market

dynamics (Taghian & Shaw 2010:398). To obtain market fit, organisations need to have

sufficient insight into the needs of customers within specific segments as well as the

opportunities presented by the external environmental dynamics (Tonks 2009). Market

fit is a sound marketing objective and Taghian and Shaw (2010:395) demonstrate that it

associates positively with performance. Marketing objectives and strategies should thus

be specific per target market. This requires organisations to have a deep understanding

of customer needs within each segment as well as employ information systems that are

geared to provide them with required information per segment and formal processes to

identify marketing opportunities. Finally, to monitor value, performance should be

measured per segment (McDonald & Dunbar 2004; Taghian & Shaw 2010).

2.3 The link between the practice of strategic marketing and performance

Earlier research established the a firm’s performance is determined, at least in part, by

how effectively and efficiently the firm’s marketing strategy is implemented (Olson,

Slater & Hult 2005:49). However, according to Olson et al. (2005) most studies that

consider the influence and impact of strategic marketing activities and the specific

behaviours of organisations associated with the adoption and implementation of these

activities on performance is done in isolation. This study represents an important


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contribution to the understanding of the relative impact of the practice of strategic

marketing on firm performance. The review of literature found that both academic

prescriptions and practical considerations indicate that strategic marketing is the

process of market definition, segmentation and targeting with improved organisational

performance as the desired outcome.

Strategic marketing inputs (as opposed to outputs) furthermore require clear

objectives and strategies for each chosen segment, and should result in segment-

based marketing and measurement. We use these strategic marketing concepts as

the foundation for this research. We then build on prior research to explore the

dimensionality of the strategic marketing item scales to determine underlying factors

that represent the practice of strategic marketing. The relative impact of these factors

is measured on the firm’s perceived financial performance. This approach provides

insight into the specific strategic marketing requirements for improved company

performance. This should guide marketing executives as they attempt to construct

high performance organisations.

Performance can be measured by means of objective or subjective evaluations of

achievements. The distinction between objective and subjective measures lies in

whether the measure is based on empirical observation or, alternately, on beliefs,

attitudes or perceptions (Wang & Gianakis 1999:538). Strategic management

researchers often encounter problems obtaining objective measures of selected

aspects of organisational performance that are reliable and valid. These problems

emanate from competitive realities, customised measurement metrics and complex

organisational structures constituting business units in multi-industry firms (Dess &

Robinson 1984; Van der Stede, Chow & Lin 2006). Subjective evaluations of

performance were used in preference to objective measures, as the context of the

study considered the organisational behaviour of a wide variety of organisations

representing various sizes and industries. Company performance was measured from

a competitive perspective and expressed in terms of a company’s financial

performance compared to the rest of the industry over the last three years.

Dess and Robinson (1984:266) suggest that profitability of the industry within which

the firm competes is a significant predictor or firm profitability which in turn provides an


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indicator of firm performance. After an overview of the methodology employed by the

study, the organisational behaviour displayed by South African companies around

strategic marketing practice is presented.

3 METHODOLOGY

Since the research was exploratory and of general interest, seeking to establish a

pattern of organisational behaviour around the practice of strategic marketing and

performance, a positivistic and quantitative approach was used. In order to elicit a

higher response rate, structured telephone interviews were conducted with the

selected respondents using a survey approach. Data were collected by means of

computer-assisted telephone interviewing (CATI) using questionnaires with a

predetermined set of questions. Respondents were also given the choice to complete

the survey in their own time online. This method reduced costs, increased timeliness

and improved data quality (Couper 2005:487). The interviews were conducted by a

research company familiar with the sample frame and the average interview lasted

between 10 and 15 minutes.

3.1 Population and sample

The population relevant to this study included marketing decision makers employed by

medium to large South African-based companies that employed at least 100 staff

members. This choice was based on the assumption that larger business

organisations have a greater likelihood of targeting multiple segments, having a

significant marketing budget, having a formal marketing structure and exhibiting a

higher incidence of formal strategic marketing practice. Since there is no widely

recognised sampling frame of South African marketing decision makers to draw from,

the sampling methodology had to be non-probability sampling.

A combination of sampling techniques was used to select a final sample. Firstly,

convenience sampling was used to construct a sampling frame. A database containing

733 eligible respondents was compiled from industry sources. Each respondent

represented a unique organisation and was selected on the basis of his/her role in

strategic marketing. In all cases only one marketing executive per organisation was

targeted. The unit of analysis was individuals that were primarily responsible for

strategic marketing functions and were considered to be key decision makers within


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the strategic management function regardless of job title. Quota sampling was also

used due to budgetary constraints. In total, 167 surveys were completed representing

firms operating in three broad industries, namely manufacturing, trade (wholesale and

retail) and service.

3.2 Measurement instrument

Data were acquired by means of structured questionnaires. Although the

questionnaire comprised various sections covering a variety of marketing issues, the

focus of this article is on two sections dealing with company and respondent

particulars and strategic marketing practice in the establishment. The latter section

used closed rating and category questions to collect opinion, behaviour and attribute

data (Saunders, Lewis & Thornhill 2007). In this section respondents had to identify

the main basis used by their companies to define markets and segments, indicate their

level of agreement with a range of statements dealing with the practice of strategic

marketing and rate their company’s overall financial performance compared to the

industry in which they operate.

Measurement items for strategic marketing practice were adapted from the work of

McDonald and Dunbar (2004:xvii) to fit the South African context through pilot testing.

During this process the opinions of a group of industry experts (six), senior marketing

academics (four) and a qualified statistician were obtained on the representativeness

and suitability of the questions from a content and data perspective.

Table 1 contains a summary of key strategic marketing concepts that were

investigated and indicates the items used to measure agreement of respondents on a

5-point Likert scale. Two of the strategic marketing concepts namely, market definition

and targeting, are considered to be clear outcomes of strategic marketing decisions.

As such, one measurement item per concept was appropriate to measure the

adoption thereof. More measurement items were used to measure the remaining

concepts as these concepts constitute different interpretations and degrees of

adoption as established in previous studies (i.e. McDonald & Dunbar 2004).


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TABLE 1: Strategic marketing measurement items

Concept Measurement items

Market definition We have a clear definition of the market(s) we are serving

Segmentation We have identified clearly defined market segments

We are able to categorise each of our customers according to the segment they fall into

We have a deep understanding of the needs of each segment

We have formal processes in place to identify marketing opportunities

Targeting We focus on specific segments that are attractive to us

Segment-based

marketing and

market fit

We have specific marketing objectives for each of our chosen market segments

We have a clear strategy for each of our chosen market segments

We know exactly how we perform in our chosen segments compared to our competitors

Our information systems are geared to provide us with the information we require for each

segment

3.3 Data analysis

After being edited and captured in PASW (SPSS), the data were processed to provide

descriptive measures in order to describe the data set according to its shape. Data

were summarised for individual variables in the form of frequency tables and, where

applicable, graphs. Descriptive statistics were also calculated to describe (and

compare) variables numerically (Saunders et al. 2007).

Data analysis aimed to empirically validate the numerous variables believed to have

an impact on strategic marketing practice and to combine these variables into factors

relevant to the research context. Variables were thus subjected to exploratory factor

analysis to assess the dimensionality of the strategic marketing item scale and to

determine the relevance of categories identified from literature. To confirm the

suitability of the variables contained in the correlation matrix to factor analysis and the

significance of all correlations, the Kaiser-Meyer-Olkin (KMO) measure of sampling

adequacy and Bartlett's test of sphericity were calculated. Varimax rotation was

employed to derive a simple structure, and factors with Eigenvalues less than 1 were

screened out (Hair, Black, Babin, Anderson & Tatham 2005:90). To determine the

correlation between a scale item and a factor, a factor loading of 0.5 was deemed

acceptable, given the guidelines provided by Hair et al. (2005:128). Cronbach’s alpha


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was used as a measure of internal reliability for the identified factors. Factors identified

with alpha coefficients that exceeded the suggested lower limit of 0.7 (Hair et al. 2005)

were retained. Finally, correlation analyses, considering Spearman’s rank correlation

coefficients, were done to assess the strengths of relationships between the new

factors and company performance (dependent factor) and to calculate the level of

significance.

4 DISCUSSION AND RESULTS

The results report on the sample profile and organisational behaviour with regard to

strategic marketing practice and the relative impact thereof on performance. This

section will provide the findings from the survey in order to address the research

questions.

4.1 Company and respondent particulars

In total 167 respondents completed the survey. This was in line with the quota

sampling guideline of at least 150 respondents, with at least 30 of them representing

each of the broad industry classification sectors (manufacturing, trade and service

industries). The companies represented in the analysis operated mainly in

manufacturing (43.7%), followed by services (36.5%) and trade (19.8%). The average

number of full-time employees was 1 483. Approximately 17% of companies employed

more than 1 000 full-time employees, and 27.4% of the companies employed between

500 and 1 000 employees. Companies that employed between 250 and 500 staff

members constituted 27% of the sample and the remainder (28.5%) of companies

employed between 100 and 250 employees.

Management levels of respondents varied and 8.4% of the respondents indicated that

they were appointed in a director’s position, 49.9% in a senior manager or executive

position and 43.7% of the respondents were middle managers. We concluded that the

sample was generally representative of marketing decision makers in formal South

African business organisations.

4.2 Segmentation bases

As a point of departure, respondents had to indicate whether their companies

employed the practice of segmentation. Considering the relative size of companies


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included in the analysis it was not surprising that all respondents confirmed that they

practised market segmentation. Next, it was deemed important to determine the main

bases used by South African companies to define and segment markets. It was not

however, the intention of this study to evaluate the appropriateness, efficiency, quality

or effectiveness of customer segment bases or schemes. Respondents were, as a

result, requested to select one of six well-recognised segmentation criteria adopted by

companies as their main basis for market definition and segmentation, i.e. customer

demographics, products or services, customer psychographics, customer behaviour,

customer needs or other criteria not specified. Figure 1 provides an illustration of

responses. Only one respondent indicated that the company he/she represented split

customers evenly between sales representatives.

FIGURE 1: Criteria used to define and segment South African markets

Best practices in segmentation literature (Best 2009; McDonald & Dunbar 2004)

prescribe a shift towards needs-based segments in line with the required market

orientation approach. This is reflected in the results, with customer needs (39%) the

most popular basis of segmentation. However, companies tend to make more use of

tangible measures of market segmentation, such as customer demographics,


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products or services and customer behaviour, with 56% of companies opting for this

method of segmentation compared to 43% opting for intangible bases of

segmentation, such as customer psychographics and customer needs. This result is

perhaps not unexpected, given that segmentation projects using intangible measures

such as customer needs tend to be relatively complex, expensive and time-

consuming. Results therefore suggest that there may be substantial differences in

the ways companies implement and practise strategic marketing.

This was further examined by comparing the extent to which different industries use

different segmentation bases (see Figure 2). It was interesting to note that the

wholesale and retail trade used tangible measures of segmentation (demographics,

products and services and behaviour) much more than they used intangible

measures (psychographics and needs), while service firms used intangible

measures more than they used tangible measures. It would thus seem firms that are

location and product driven will tend to make more use of tangible measures of

segmentation.

59%70%

48%57%

41%30%

53%43%

Manufacturing Trade Services Total

Tangible bases Intangible bases

FIGURE 2: Bases of segmentation across different industries


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4.3 The adoption of strategic marketing processes

In order to explore to what extent South African companies employ key strategic

marketing practices respondents were asked to consider and indicate their level of

agreement with statements that related to market definition, segmentation, targeting,

determining market fit and market-based segmentation. An overview of the results is

provided in Table 2. To do meaningful analysis of responses, data were subjected to

top-two box analysis. Results were thus recoded to indicate respondents that agreed

(combining responses with a 4 or 5 rating), respondents with neutral feelings (neither

agree nor disagree) and respondents that disagreed (combining responses with a 1 or

2 rating).

Table 2: South African companies’ compliance with key strategic marketing

practice

N = 167 Disagree Neither Agree

We have a clear definition of the market(s) we are serving 1.2% 3.6% 95.2%

We have identified clearly defined market segments 1.8% 7.2% 91.0%

We focus on specific segments that are attractive to us 2.4% 6.0% 91.6%

We have specific marketing objectives for each of our chosen market

segments

3.6% 7.8% 88.6%

We have a clear strategy for each of our chosen market segments 3.6% 10.2% 86.2%

We have a deep understanding of the needs of each segment 6.0% 15.6% 78.4%

We know exactly how we perform in our chosen segments compared to

our competitors

12.0% 15.0% 73.0%

Our information systems are geared to provide us with the information

we require for each segment

12.4% 18.6% 68.9%

We have been able to categorise each of our customers according to the

segment they fall into

6.6% 9.6% 83.8%

We have formal processes in place to identify marketing opportunities 16.8% 16.2% 67.1%

Results in Table 2 suggest that most respondents agreed that their companies

adhered to strategic marketing practice. However, less agreement is observed with

statements that relate to practice required to determine market fit and do segment-

based marketing (see Table 1). One-way analysis of variance (one-way ANOVA) was

used to analyse the variance within and between group representatives of different


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industries, company sizes and companies employing different segmentation bases by

comparing means (Saunders et al. 2007). However, results showed that there were no

significant differences for any of the attributes between groups displaying different

levels of agreement. It can thus be concluded that South African companies display

similar levels of agreement despite their company size, the industry in which they

operate or the segmentation criteria they use to define and segment their markets.

Next, exploratory factor analysis was done to define the underlying structure in the

data matrix and to reduce and summarise the data (Hair et al. 2005). The KMO

measure of sampling adequacy of 0.848 and Bartlett's test of sphericity of <0.01

indicated the suitability of the data. All the initial and extracted communalities were

also greater than 0.255, in line with factor analysis requirements. Two factors were

obtained based on Eigenvalues (> 1) and cumulatively explained 59.1% of the

variance. These factors were labelled as segment-based marketing and segment

insight. Table 3 presents the underlying structure for the two strategic marketing

factors and includes scale variables, factor loadings and the Cronbach’s alpha

coefficients of the respective factors.

TABLE 3: Rotated component matrixa

Factors

Segment-based

marketing

α = 0.838

Segment

insight

α = 0.778

We have a clear definition of the market(s) we serve .769

We have identified clearly defined market segments .814

We focus on specific segments that are attractive to us .694

We have specific marketing objectives for each market segment .757

We have a clear strategy for each of our chosen market segments .720

We have a deep understanding of needs of each segment .647

We know exactly how we perform in our chosen segments compared to

our competitors

.778

Our information systems are geared to provide us with the information we

require for segments for each segment

.814


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Factors

Segment-based

marketing

α = 0.838

Segment

insight

α = 0.778

We have formal processes in place to identify marketing opportunities .726

Extraction method: Principal component analysis. Rotation method: varimax with Kaiser normalisation.

a. Rotation converged in three iterations.

Factor 1 was labelled ‘segment-based marketing’, as the five variables displaying high

loadings all relate to practice associated with segment-based marketing. This factor

postulates that strategic marketing is based on the company’s ability to clearly define

markets and market segments. Specific segments should then be selected and served

with specific objectives and strategies per segments. This factor indicates internal

consistency reliability (Cronbach’s α = 0.838). The second factor was labelled

‘segment insight’, as the four variables displaying high loadings all relate to the overall

understanding of the needs and opportunities found in each segment as well as the

requirements to obtain such insight, i.e. information systems and performance

measures. This factor indicates internal consistency reliability (Cronbach’s α = 0.778).

These factors are in line with the requirements set by leading authors for successful

strategic marketing, namely a clear market orientation (expressed through customer

insight) and the STP formula as a prerequisite for successful marketing strategies.

When comparing the means for the two factors, it emerged that the segment-based

marketing factor (mean = 4.3) was rated significantly higher than the customer insight

factor (mean = 3.8). This result suggests that firms generally feel more comfortable

that they have segment-based marketing in place than they feel about their real insight

into customers in the chosen segments. This is further emphasised if the rating of

‘strongly agree’ on the items associated with each factor is compared (see Figure 3).


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58%

50%46%

41%35%

28% 27%

17%22%

FIGURE 3: Comparison of factor items with a rating of strongly agree

4.4 Strategic marketing and company performance

Company performance was measured from a competitive perspective and expressed

in terms of a company’s financial performance compared to the rest of the industry

over the last three years. In order to assess performance respondents were asked to

rate their financial performance against the rest of their industry as either below to

average or as above average. The majority of respondents (67.7%) considered

company performance as above average and the remaining 32.3% (54 respondents)

indicated performance to be below to average. This simplistic measurement item was

used as a dependent factor within correlation analysis. Correlation analysis considered

Spearman’s rank correlation coefficients to assess the strengths of relationships

between the new factors and performance (dependent factor) to calculate the level of

significance. The result of this analysis is depicted in Table 4 and in Figure 4.

SEGMENT-BASED MARKETING

CUSTOMER INSIGHT


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TABLE 4: Correlations

Financial

performance

Customer

insight

Segment-based

marketing

Spearman's rho Overall financial

performance

Correlation

coefficient

1.000

Sig. (2-tailed) .

N 167

Customer insight Correlation

coefficient

.233** 1.000

Sig. (2-tailed) .002 .

N 167 167

Segment-based

marketing

Correlation

coefficient

.097 .486** 1.000

Sig. (2-tailed) .215 .000 .

N 167 167 167

**. Correlation is significant at the 0.01 level (2-tailed).

FIGURE 4: Role of segment-based marketing and customer insight in financial

performance

Results displayed in Table 4 indicate that segment-based marketing does not have a

significant correlation with financial results, and customer insight has a significant (p

< 0.005) but weak positive correlation (r = 0.233). There is a significant (p<0.005)

moderate positive correlation (r = 0.486) between the latter construct and customer

insight. These results therefore suggest that the processes of market segmentation,

on their own, will not improve financial performance. It is important to use the

processes of segmentation to gain better insight into customers, and improved

customer insight will lead to better financial performance. This implies that the

practice of segmentation is not a differentiator, but that customer insight might be.

Segment-based

management

Customer insight

Financial performance

0.233 0.486


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5 CONCLUSION

The study set out to examine two research questions. Firstly, we examined the

strategic marketing practice adopted by South African firms. As a point of departure

we investigated the bases of segmentation used by South African firms, as market

segmentation is the starting point of the strategic marketing process and the chosen

basis of segmentation will affect all other strategic marketing activities. Our results in

this regard suggested that most firms are more or less evenly split on tangible and

intangible bases of segmentation, but there are also indications that there are

sectoral differences, with service firms favouring intangible measures and

manufacturing and trade/hospitality firms favouring tangible measures of segments.

This seems to be mostly based in the product and location focus of manufacturing

and trade firms, compared to the more intangible nature of services.

Next, we examined other strategic marketing practices adopted by South African firms.

Our findings here suggested that, although most firms indicated that they perform

strategic marketing activities, they were less confident that they established a

competitive advantage or customer insight as a result. The relative importance of

customer insight was demonstrated by the fact that it had a significant correlation

(albeit relatively weak) with financial performance, whereas segment-based marketing

activities did not. Merely ‘ticking the boxes’ and performing strategic marketing

activities for the sake of it is thus not enough to improve financial performance.

Examining this link between financial performance and strategic marketing activities

was the third objective of our study.

For marketing practitioners the findings suggest that the method of segmentation

seems to be less important than how segmentation is used to develop customer

insight. This requires a particular effort to develop a deep understanding of segment

needs, to understand the relative competitive position of the firm in the segment, to

align organisational systems with market segments and to encourage organisational

activities, such as interdepartmental knowledge exchanges, that promote customer

insight.

For academics the study suggests that there is a need for a deeper understanding of

actual marketing practice. While many organisations have indicated that they


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perform strategic marketing activities, our experience in practice suggests that these

activities are performed with varying levels of quality. It would thus contribute to a

deeper understanding of the role of strategic marketing in organisations if these

could be studied in depth in the organisations where they occur to evaluate the

appropriateness, efficiency, quality and effectiveness of practices.

Whereas this study considered generic strategic management activities further

studies that consider company specific outcomes (i.e. the selected markets,

positioning and marketing plans) have the potential to increase our understanding of

the practise of marketing. Further research is also required to investigate the ways in

which segmentation approaches can be integrated with the needs and priorities of

company specific strategic decisions. There is also a paucity of research on strategic

marketing on the African continent, a gap that should be addressed if we are to

develop a better understanding of strategy and management in Africa in general.

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the perceived contribution of the practise of strategic

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